Question
November 13, 2007
VIA E-MAIL
Michael B. Verne
FTC Premerger Notification Office
Bureau of Competition Room 303
600 Pennsylvania Avenue, N.W.
Washington, D.C. 20580
Re:Licensingarrangement
Dear Mike:
Thank you for your email regardingthe staffs recent interpretations concerning the effect of retaining researchand development rights on the exclusivity of intellectual property licenses. See, e.g., Informal Staff Opinions 0702022(which found the license in question to be non-exclusive) and 0511011 (whichfound the license in question to be exclusive). As we discussed, we representclients proposing to enter into a global license and product developmentagreement, and wish to determine whether their proposed license would constitutea reportable acquisition of assets under the HSR Act and rules.
While the license being grantedto our client would be termed an "exclusive worldwide license" withinits defined field of use, the grantor will, in addition to retaining certainrights to continue to research and develop innovations under the licensedpatents, also retain rights to sell or commercially exploit the patentedtechnologies under certain circumstances as set forth in the agreement anddescribed below.
The following is a summary of the key terms of theagreement:
License Grant. Licensor anticipates granting to Licensee an"exclusive, worldwide license," including the right to sublicense,develop, make, have made, use, have used, sell, offer for sale, have sold,install, lease, convert, modify, repair, rebuild, import, export, or otherwisedispose of Innovationsincorporated in Productsin the Fieldof Use and topractice or have practiced all methods under the Licensed Patents. Innovations are commercially valuable ideascovered by one or more Licensed Patents; Products are any item thatincorporates an Innovation; Field of Use is defined in terms of a specific category of industry usage;and LicensedPatents are bothissued and pending patents or any patents subsequently filed, whether owned orlicensed to Licensor, relating to the Field of Use.
Thegrant would be subject to four existing licenses issued by Licensor (one ofwhich is to Licensee), which are in the same Field of Use and some of whichoverlap with the Innovations protected by the Licensed Patents. Licensor wouldbe prohibited from expanding the scope of these existing licenses, or otherwiseextending or enlarging the rights conferred under these licenses, withoutLicensee's consent. To the extent Licensor is able to pay a fee or penalty toterminate or limit an existing license, it would be required to do so, providedLicensee reimburses Licensor therefor. Any termination or reduction in scope inthe existing licenses with respect to the Field of Use correspondingly wouldexpand the license in the Field of Use granted to Licensee.
Project Initiation Process. Under the proposed license,Licensor would approach Licensee with Innovations to be developed. If Licenseeaccepts Licensor's proposal for a Product based on one or more Innovations,Licensee would be required to either (a) accept the project and develop theInnovation at its own expense, (b) fund the development by reimbursingLicensor's expenses therefor, or (c) decline to develop the Innovation. IfLicensee aborts development it has undertaken or funded, or declines theInnovation from the start, Licensor would be able to develop the Innovationalone or with a third party, provided that Licensee would have the right toapprove any agreements between Licensor and such third parties. If Licenseewere to approve Licensor's pursuit of the Innovation without Licensee'sinvolvement in its development, Licensee agrees to grant back to Licensor alicense to the Licensed Patents for solely that purpose.
Retained Research and DevelopmentRights. Licensorwould continue to conduct R&D on the Innovations in so far that projectssubmitted by Licensor to Licensee for consideration will have to demonstratethat the Innovations are commercially viable. Also, Licensor would continuedoing R&D on a going forward basis for Products that Licensee has declinedor that Licensee has agreed to merely fund. Some of those Innovations andProducts would be pursued with or by Licensee and some would be pursued byLicensor itself or with third parties. Finally, the parties contemplate aconsultative process for the development of certain Products.
Certain IP Provisions.' Title to inventions anddiscoveries, and any resulting patent or patent application, would be owned by theinventing party. Inventions jointly made would be co-owned by the parties,provided that Licensee would have an automatic non-exclusive, worldwide,royalty-free license in the co-owned inventions in the Field of Use, and wouldhave the right to acquire an exclusive license to the co-owned inventions inthe Field of Use in exchange for one-half of the applicable royalty ratepayable for the Products, as the case may be.
Please let us know if you haveany questions or require any additional information. We would appreciate thestaff's guidance, at your earliest convenience, regarding whether the rightsretained by the Licensor in the above described license are sufficient to makethe license non-exclusive and hence non-reportable under the HSR Act.